The way we were

Commentary: A look back at Wall Street's go-go days of 2007

By

DavidWeidner

NEW YORK (MarketWatch) -- Believe it or not, there was a time -- another era, really --when negative "exposure" on Wall Street was something that occasionally happened when a banker drank too much at the closing party for another multibillion-dollar merger.

That would be about 12 months ago.

It seems like a long-gone age. The issues facing Wall Street last spring would be petty annoyances today. Just a year ago, mergers and acquisitions were at an all-time record, brokerage profits had rocketed into uncharted territory, the Dow Jones Industrial Average
DJIA, -1.35%
was floating in the rarefied air above the 13,500 level and was soon to move above 14,000. The Nasdaq Composite Index
COMP, -1.84%
was creeping above 2,600.

So much was going right, it seemed we had to make up our problems. Little did we know that soon our creations would be wiped away with chief executives and fallen banks.

For instance, Wall Street was snickering at the stern sick-leave policy put in place by Merrill Lynch & Co.
MER, -3.69%
Merrill's nine-days-and-you're-out policy was hailed as "draconian" by its employees. Now that Merrill is seeking to cut up to 7,000 nonbrokerage jobs in the coming months -- on top of thousands of layoffs during the past 10 months -- employees can't be feeling much better, but you can bet they're showing up to work. Read archived column.

Oil was at $65 a barrel. A month later, when the price nearly hit $79, economists openly wondered if the economy could sustain runaway prices. Analysts explained the rise by talking about political tension overseas, greater demand and a lack of refinery capacity. Almost no one mentioned the influx of speculators, mostly from hedge funds, who have since made $80-a-barrel oil seem like a bargain. See full story.

Bank of America Corp.
BAC, -0.59%
was in the midst of what would end up as a protracted fight for LaSalle Bank, the Chicago-based arm of ABN Amro. Critics worried that B. of A.'s CEO, Ken Lewis, was paying too much for LaSalle. Lewis and his defenders argued that the $21.5 billion deal was a long-term franchise play. Today, Lewis probably wishes he would have saved a little on LaSalle to offset B. of A.'s balance sheet losses and the bleeding at Countrywide Financial Corp.
CFC, +1.52%
a $4.1 billion acquisition that some worry was also overpriced. See full story.

Abby Joseph Cohen, said on the cable channel CNBC in early June 2007 that stocks were underpriced and would continue to move higher. To be fair, she said that the economy and profits would slow from their "torrid" pace. Today, Cohen's still at Goldman Sachs Group Inc.
GS, -1.89%
but she's been removed as the firm's short-term analyst. See full story at WSJ.com.

Speaking of CNBC, that outlet was overcoming a couple of scandals. There were allegations that anchor Maria Bartiromo had taken an improper trip on a Citigroup Inc. jet, and that its "Portfolio Challenge" contest was rigged. Today, the station is merely facing new competition -- backed by Rupert Murdoch. (Rupert Murdoch is the chairman and CEO of News Corp.
NWS, -1.47%
the parent company of MarketWatch, publisher of this report.)

Jim Cramer, the star of TV's "Mad Money," defended Stanley O'Neal of Merrill Lynch & Co., John Mack of Morgan Stanley, Lloyd Blankfein of Goldman Sachs and Jimmy Cayne of Bear Stearns Cos. in a New York magazine commentary with the subheadline "Don't hate investment bankers for raking in millions." Of course, one firm is all but history, two of those CEOs have been fired, and another has survived a proxy fight.

But don't blame Cramer. A year ago the mortgage and credit crises were just a bad dream. We knew trouble was looming -- inflated home prices were skewing the consumer market, and cheap cash fueled a private-equity buyout boom unprecedented in history. Guys like Cayne, O'Neal and Mack were making a tidy profit off it all. Who, other than Blankfein, knew the coming write-downs would eliminate the last two years' worth of profit?

Today we predict $200-a-barrel oil and another $100 billion in credit write-downs at major banks. Home prices have further to fall. The buyout boom has slowed. Wall Street will lay off another 30,000, including 9,000 combined from Bear Stearns and Lehman Brothers Holdings Inc.
LEH

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